Clients will often ask me my opinion on thing relating to the mortgage industry and homeownership in general. These questions will, usually, lead to a conversation around the worthiness of property as an investment. And while I am pretty straightforward in my belief that owning properties is seldom a bad thing, there is a small exception to that rule in the area of multifamily properties in some cases. And since I have had several clients recently ask me if multifamily properties are good investments, I decided to lay out my position.

Well maintained multifamily properties can be cash cows for investors; you have multiple streams of income coming off of the property, they generally maintain their value, and there can be some pretty significant tax savings involved with owning a multifamily. But if the property is not well maintained, the renters are not stable or reliable, or you don’t have the time to manage the property, they can become a real nightmare. So when buying a multifamily property, you need to ask yourself why you are buying it, who you expect to live there, and how much time and money you plan to put into it.

If you are planning to live in the property, you will often find it kept in better shape. But, you are sharing your home with other people, and you can find yourself in a situation where a tenant needs something fixed and will come get you at any time of day or night expecting the problem fixed immediately. And because you live there, you need to drop everything and do it (even if you don’t know how). But then again, if you don’t live there, expect to regularly check in on the property or hire a property management company.

You also need to be careful when interviewing potential tenants. The neighbors are now sharing a wall, not a fence like in a single family residence, so that changes the relationship. Loud music, parties, issues of hygiene and sanitation will be a bigger deal. If personalities clash, it can become a situation of escalating, constant, complaints. And no landlord wants that.

So if you are an experienced landlord who has the time and willingness to maintain a multifamily property, then you can do very well on the investment. But if you are putting all of your resources into buying the property, it might not be the best idea, as there are now four or more little houses to maintain, meaning four or more times the potential problems, compared to a single family residence.

If you have any questions about buying a multifamily property here in Michigan or about getting a preapproval for a mortgage, please contact me. If you have anything to add, please leave a comment.